Colombian President Alvaro Uribe said the government has no plans to impose further restraints on short-term capital inflows and won't impose any controls on foreign direct investment as it seeks to stem the peso's rally.Next up is Brazil, which has just cut domestic interest rates to very low levels by Brazilian standards to stem an inflow of capital:``I am convinced, I have the certainty, that we cannot put capital controls on foreign direct investment,'' Uribe, 54, said in an interview last night in his office at the presidential palace in Bogota. ``So far, we haven't thought of any new ideas, and my concern now, my focus, is on how to protect jobs.''
Uribe has publicly complained in recent months that inflows of speculative investment are partly responsible for the peso's 31 percent rally in the past year. The strengthening currency is crimping profits of the nation's exporters who get dollars for their goods, leading some to fire workers. Uribe said on May 24 he personally favored more stringent restrictions on inflows than the finance ministry did.
Finance Minister Oscar Ivan Zuluaga has imposed controls on short-term capital entering Colombia and offered subsidies and loans to exporters hurt by the peso's rally. On May 23 he forced investors buying local stocks and bonds to deposit 40 percent of their purchases with the central bank for six months and has not ruled out lengthening the holding period to a year.
Colombia's peso weakened 0.3 percent to 1,883.1 per dollar after falling as much as 0.9 percent earlier in the day. The currency has strengthened almost 19 percent this year, the largest advance among 70 currencies tracked by Bloomberg.
Brazil's central bank lowered the benchmark lending rate by half a percentage point today, the biggest reduction this year, as a rally by the country's currency holds inflation at an eight-year low.And now Argentina is offering fixed-rate bonds again after giving its creditors a 70% haircut on its sovereign debt back in 2005; that is, Argentina's creditors meekly accepted 30 cents back per dollar of face value on Argentinian bonds after the implosion of the dollar peg earlier in 2001. After that episode, will there still beThe seven-member board cut the overnight lending rate to a record low 12 percent at its almost monthly meeting in Brasilia, as anticipated by 19 of the 26 economists surveyed by Bloomberg. The bank has cut the rate from a high of 19.75 percent in September 2005.
``This signals the central bank's greater emphasis on the effects of the exchange rate on the economy and inflation,'' said Carlos Eduardo Olinto, a Rio de Janeiro-based fund manager at Mellon Global Investments, which has $2.2 billion in assets.
Brazil's real has appreciated to its strongest level since 2000 this year, cutting the cost of imported goods and keeping consumer price increases in Latin America's biggest economy in check.
The central bank, led by President Henrique Meirelles, 61, lowered annual inflation to 3.18 percent in May from about 17 percent in May 2003. The rate is well below the bank's inflation target of 4.5 percent for this year and next.
``Evaluating the macroeconomic scenario and the perspective for inflation the monetary policy committee decided at this moment to reduce the overnight rate,'' the central bank said in a statement.
Olinto expects another half percentage point reduction at the central bank's July 18 meeting.
Argentina plans to sell as much as 1.5 billion pesos ($488 million) of five-year bonds in its first fixed-rate bond sale since defaulting on $95 billion of debt six years ago.The bonds, known as Bonars, will pay an interest rate of 10.5 percent, the Economy Ministry said in a statement. Argentina will accept bids on the bonds through 1 p.m. tomorrow New York time.
Argentina is turning to fixed-rate securities after demand weakened for the nation's inflation-linked securities amid allegations the government manipulated consumer price data. The country's reliance on dollar debt also makes it vulnerable to exchange rate swings that can increase the cost of its obligations.
``The concern about the quality of the inflation data made it more difficult for them to sell the inflation-linked bonds,'' said Christian Stracke, head of emerging-market research at CreditSights Inc. in Augusta, Georgia. ``This may begin a trend that they have to shift to more fixed-rated bonds.''
Workers at the government's statistics institute have said a new government appointee changed the methodology for the index to downplay rising inflation. President Nestor Kirchner has denied the government manipulated the data.
Julian Manzolido, an economist at Deloitte & Touche LLP in Buenos Aires, expects the new bonds to yield about 12 percent.
